Government "dithering” on pension reforms could cost low earners thousands

Government delays to pension reforms could leave low-paid workers thousands of pounds worse off, according to new TUC analysis published today (Tuesday).

The government had pledged to remove the Lower Earnings Limit (LEL) - which would boost the retirement pots of low-income workers. But ministers are dithering and have only given a vague commitment to lower the threshold in the mid-2020s.

The LEL is currently £6,000, which means that the first £6,000 a person earns annually doesn’t count towards pension contributions. For the lowest earners, this is a high proportion of their income.

Removing the limit will therefore be particularly beneficial to the lowest paid and so should be done as soon as possible, says the TUC.

New TUC research shows that a delay of just six years could mean a worker earning £10,000 loses out on a sixth of the value of their pension pot. The losses include not only the missed contributions, but the investment gains foregone.  

Workers on annual earnings of £10,000 would see the amount saved in their pension every year more than double if contributions were calculated from the first pound of earnings.

If this was applied from 2022 rather than 2028, the added investment gains could boost their final pension pot by £12,000 in cash terms or approaching £6,000 accounting for inflation.

For a worker on annual earnings of £15,000, total annual contributions would rise by £500 with employer contributions soaring by 70 per cent.

TUC Deputy General Secretary Paul Nowak said:

“Automatic enrolment has been a great success. For the first time, many working people on low incomes have employers paying towards their old age.

“But the government needs to build on its success, so that every worker gets the pension pot they deserve. 

“Our message to government is simple – stop dithering, deliver on your promises and ensure every pound earned by every worker counts towards their pension.”